Wednesday, October 6, 2010

What the!?, Mervyn King says

U.K. Food Prices Climb at Fastest Pace in 15 Months, BRC Says

So, what next?

Posted by estrader @ 09:44 AM (2520 views)
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41 thoughts on “What the!?, Mervyn King says

  • tyrellcorporation says:

    So, what next?

    Simple, IRs stay nailed to the floor and people get poorer. Inflation is being ignored and it will be for the foreseeable future.

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  • Neptunian: You got any food? Old tea bags, chewed gum, apple cores? C’mon, we’re starving here.
    Fry: But you live in a gingerbread house.
    Neptunian 2: Hey, it’s food or shelter, not both.

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  • £5 loaf of bread anyone? Not long now, especially if Merv prints up some more fresh cash.

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  • sibley's b'stard child says:

    This is totally unexpected.

    I eagerly await the mollifying press release by the MPC this week. Followed by another totally unexpected 8-1 decision to keep IRs the same.

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  • How many on this site would take their cash mountain gained from past house sales and put into, say gold or other investments?
    Not many I think, too much of a bet, a gamble with the family silver. How many would play the currency markets with this sum of cash? Not many again. This sum is not a pool for a little gamble; it’s the families’ future. MW has said this in the past and is willing to stay in cash and take the inflation hit, provided that house prices continue to decrease. However the decreases seen so far are pretty negligible versus UK currency.
    So what do you do in this situation to protect against the inevitable ‘manufactured’ inflation that Merv is so hell bent on?

    Perhaps property kills two birds with one stone!

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  • Food and commodity prices up, equity prices up – both logical consequences of currency debasement, and the harbinger of inflation to come.

    So why are gilt and bond prices up as well? The yields on short dated US treasuries have been hitting record lows of late..

    Are the markets so convinced about coming deflation that they are not only determined to ignore the storm clouds of inflation on the near horizon; (and therefore consider bond yields to represent good value); but are also happy to gobble up the huge current issuance..?

    ..or is the Fed trying to force the exchange rate issue with the Chinese, by recklessly creating immense amounts of new money with which to buy its own stock?

    The first option seems highly implausible, while the second would seem hard to conceal..

    ..yet it’s hard to find a credible third scenario.

    ..my instincts tell me that there’s an upset brewing – something ain’t right here..

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  • Nice post UT. I think people will ignore the thread of inflation until it’s too late.

    So what do you do in this situation to protect against the inevitable ‘manufactured’ inflation that Merv is so hell bent on?
    Perhaps property kills two birds with one stone!

    Yes, I think people will buy property, the problem is that it is a heavily overpriced asset. There are other assets that are far better value. Of course – property isn’t portable…..

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  • sibley's b'stard child says:

    Not I Smuggy; i’m the rare species of lesser-spotted FTB priced-out by a nation of spivs and financially illiterate f*ck-wits.

    Either prices come down or i’ll be a BTL’s serf ad infinitum.

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  • @5, Smugdog

    IMO: What you are saying misses the point, completely. I have said it before and I will say it again.

    Strong Hands, Weak Hands, The Public.

    How many people ‘here’ is so insignificant it doesn’t even count….IMO of course.

    Read the parable about the con-man and the monkeys.

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  • sibleys kid

    ‘Financially illiterate f*ck-wits’

    Who hold the deeds to the houses we’re paying for hmmm.

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  • smugdog,

    To answer your question, I’m content to keep most of my dosh in equities; and most of that in companies that have a major interest in supplying India and China with commodities, or niche manufactured goods.

    We live in an age of global re-balancing (even though its not happening smoothly..) and my strategy is to bet on the winning side.

    I will probably divert some assets back to UK property (pubs in particular) once the attempts to control and prop up the market finally give way.

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  • Uncle Tom

    Why pubs inparticular ?

    Are you expecting the nation to revert to the drowning of sorrows ?

    Or did you have a cunning plan to turn the bankrupt pubs back into houses ?

    Or maybe a new pub concept ?

    Those are genuine questions by the way, thery’re not meant to sound sarcastc.

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  • The answer is in the article – food prices are rising because of increases in wheat, corn and oil prices. And those commodity prices are rising because of some combination of supply and demand conditions and movements in investor cash flows. Neither of these effects relates directly to monetary conditions, so there aren’t any real conclusions to draw from this regarding generalised, i.e. monetary, inflation.

    That said, as monetary deflation continues in the long term, expect the relative prices of goods with a short investment cycle – in particular retail goods – to increase in price relative to long-horizon assets such as housing, whose prices will fall as the mountain of debt which currently props up their prices unwinds.

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  • “Neither of these effects relates directly to monetary conditions”

    Say what? Wheat, corn and oil are priced in $US

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  • str 2007,

    “Why pubs in particular ?”

    Look around the country and you will see thousands of boarded up pubs.

    Is drinking going out of fashion? Is no-one remotely interested in buying these properties to run as pubs?

    The answer to both questions is no.

    The problem is that the Pubcos, notably Punch, got far too big, paid far too much to buy more properties, and are now in very deep sh*t.

    They are all trying to offload properties, but at totally unrealistic valuations, and to make their books look straight they have to demand rents from prospective tenants that make no economic sense – so countless more pubs are being boarded up.

    It is only a matter of time before this farce implodes – Punch are almost certainly too big to be taken over as a going concern, so when they fail I anticipate a fire sale – it is also likely that there will be a domino effect, and both Wetherspoon and Greedy King look vulnerable.

    There could be golden buying opportunity, with thousands of pubs going to auction in short order..

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  • “The problem is that the Pubcos, notably Punch, got far too big, paid far too much to buy more properties, and are now in very deep sh*t.”

    Another failed attempt to corner the market?

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  • smuggy – I have a lot in cash, but I also own a lot of physical gold, and I have an igindex account where I currently have stakes in soft commodities going up, FTSE coming down and GBP coming down relative to a number of other currencies.

    I am not a professional investor, but so far my “bets” have paid off. I do wish that I didnt have to gamble with my families future like this, but paying well over the odds for a house that should be a home just to prop up some greedy gits investment is simply not something I am prepared to do.

    I have a lot of shorts on GBP V EUR on the basis that if prices do not correct in uk I will be heading to france, and so I want to insure against currency movements in that specific area. A lot of people I know are also considering moving away. Then you’ve got the Euro nationals that will be returning home as the jobs dry up in the uk. There will be no buyers or renters for your investment properties.

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  • Again..”Hyperinflation, food shortages”

    Some things are more obvious to some than they are to others.

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  • sibley's b'stard child says:

    @ UT

    I admire your plan; from a prole’s point of view I would welcome any change which may effect lower pub prices. What’s your plan when you’ve acquired ‘x’ public houses? Flip them for profit?

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  • Sibleys Lovely B’stard Child – Make one more addition to the rare species of lesser-spotted FTB

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  • “I have an igindex account”

    It is interesting that you say this. I notice more and more ads on Bloomberg targeting a younger audience (not implying anything about your age). I also read a comment posted in an online article about house prices, it was a young woman who at first was criticizing the paper for being biased but then later wrote something like “Then again, it was thanks to this paper that I got into spread-betting by following one of the ads, so I either make money trading or I win the lottery otherwise I will never be able to buy a house”. Then just last week I read something about younger people developing gambling habits. This is painting a very worrying picture about the state of the economy and the desperation of the younger generation.

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  • estrader

    agreed,

    I think the size position you’d need in a trading account to make any significant difference to the price of a house, would lead one to be in a position of significant exposure to a move against you, even if ones directiuon was correct and the move agianst taht position was just for a couple of days.

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  • Uncle Tom

    I see your way of thinking, I obviously don’t know the size of your pockets, but I would assume it to be fairly difficult to borrow money against the purchase of a pub, particularly during a period uncertainty for that particular market.

    Assuming you’re not buying up pubs with spare cash, where would you anticipate getting credit for such purposes.

    I assume (maybe incorrectly) that a pub purchase would fall outside any type of residential/btl loan and fall into the ‘business loan category ?

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  • “Flip them for profit?”

    Depends how cheap they go – I’d like to hold on to two or three as a pension, running them as tenanted free houses.

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  • “Assuming you’re not buying up pubs with spare cash”

    Assume nothing! – I don’t do heavy leverage..

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  • the number cruncher says:

    I have just come out of chairing a business meeting where we discussed food prices – two of my organisations spend over 100k on food each. Food prices have rocketed this month for commodity foods, so has printing costs, I spend about 250k a year on printing as we publish a couple of magazines and newsletters. I am looking at about 10% increase in food and paper over the last 3 months if not a little more.

    Every cloud has a silver lining because bulk meat prices have gone up and the price differential between good quality local produce has narrowed, so we made a decision to buy our meat directly from a local farming group. This means higher quality for our customers and better animal welfare standards. I have just phoned our new supplier and he was over the moon as a lot of the gastro pubs he is supplying are folding.

    This is an interesting macro economic phenomena – as the pound devalues against world market prices so our own labour intensive industries, such as meat production, will become more competitive and opportunities will arise in these local markets that could not hope to compete before.

    I am also slightly involved in forestry and a similar phenomena has been happing there for sum time.

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  • CNN Money provides a useful little sliding bar by all their commodity prices. It shows you at a glance, where prices are compared to their highs and lows. You will see that metals are at or near the top of their range and that agriculture, meat & livestocks, and consumer commodities are far nearer the middle of their range (it’s a bit variable…. some are very low in their range, some are high and most are quite near the middle). Retail inflation lags commodity prices, so it is reasonable to assume that some retail food prices will fall back in a few months time (because the bulk of these food type commodities are no longer at the top of their range). Of course if oil soars in value, relative to the price of the Dollar. then that would trump the falls. Here’s a link.

    http://money.cnn.com/data/commodities/index.html

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  • general congreve says:

    @21 – Agreed. There is the potential to win big with spread betting, but you can also lose your shirt. 90% of spread betters lose, IG Index wouldn’t be in business if they didn’t. Plus they rig the game. It didn’t take me long to notice stock markets move in tandem most of the time, so following the ftse one day and seeing it plunge, I placed an order to open on the DOW to sell short, with the appropriate stop loss/limit in place. Returned to my laptop 2 minutes after the order to open had happened and despite the market moving the way I’d predicted I was running a loss! The order to open had been delayed until a minute after the market opened, in which time the market had initially moved below my order level and through my limit (I should have been quids in), then the market bounced and IG index opened my order with the market going the other way! I had no choice but to close out the position with a loss. I phoned them up and was given the lame excuse that there is usually a delay with market data at opening. Bullsh1t, they know people can judge opening market moves like this and deliberately delay the data to rob people.

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  • @ 14

    “Wheat, corn and oil are priced in $US”

    And your point is…?

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  • estrader @ 14

    @ 14

    “Wheat, corn and oil are priced in $US”

    And your point is…?

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  • That’s quite possibly true GC

    I’m personally cautious about keeping positions open over night and even when America opens at 3-00pm as fluctuations can easily close out a tight stop.

    It makes you wonder how much money was lost in the ‘flash crash’ a few months ago. Fortunatley I was on the right side of that, but it has made me extremely cautious about being ‘long’ at the moment without a ‘guaranteed’ stop loss.

    Personally I’m just looking for short opportunities after the morings initial exuberance, which seems to be working ok for me.

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  • 25. the number cruncher said…I have just come out of chairing a business meeting where we discussed food prices – two of my organisations spend over 100k on food each. Food prices have rocketed this month for commodity foods, so has printing costs, I spend about 250k a year on printing as we publish a couple of magazines and newsletters. I am looking at about 10% increase in food and paper over the last 3 months if not a little more.

    Okay, that all makes sense to me – but where are you on deflation? Do you see it happening?

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  • the number cruncher says:

    flashman @ 26 – thanks for your more professional market outlook, I have had a look and that gives me food for thought, my micro economic view may be clouded and a lagging indicator of what has been happening on the markets.

    HP watcher @ 30 – I really am no expert on markets. I tend to agree with Wandsworth that there are many different inflationary and deflationary pressures. We will have deflation as credit unwinds but then governments are getting up to all kinds of nonsense to counter it, but I have no idea of the relative magnitude of these competing forces, I am probably sightly to the deflationary camp.

    I am not a gambler, and prefer to gain my, and my organisations’s income through simple hard work and enterprise and avoid speculation, I personally find it tawdry and distasteful and morally suspect, so want no part in it, but that is a personal moral choice and I do not want to insult anyone here (much) 🙂 My interest in macro economics is to steer my business strategy as macro affects micro economic climates, and one of personal moral interest.

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  • Uncle Tom said :

    “..yet it’s hard to find a credible third scenario.

    ..my instincts tell me that there’s an upset brewing – something ain’t right here..”

    Is there an (incredible) 3rd scenario that would explain what’s going on at the moment?

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  • sibley's b'stard child says:

    @ Alan

    A new paradigm?

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  • I was wondering if UT was hinting at some sort of shock that might explain the current situation re. inflation/deflation/commodities/bonds.
    Far too involved for my head to grapple!

    It’s a new paradigm every time we do the weekly shop. Thinking of becoming a baked-bean-tarian that’d work out cheaper.

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  • Except that if these inflations had been produced by excessively loose monetary policy, as many on here seem to be implying, we would be observing across the board price increases. whereas the columnists are singling out oil and grain prices. well, here are two factors known to increase them: peak oil and the biofuels gravy train.
    Re. the latter, the EU has a directive that we need to produce 10% of our liquid transport fuels by 2020. Energy analysts have shown that to meet this would require large multiples of the agricultural land currently in production devoted solely to energy crops (Giampietro and Mayumi; “the biofuel delusion”).
    We shouldn’t forget that some other (highly indebted) economies are experiencing deflation. e.g.s Ireland, Japan and ?the US? If our house prices continue to slide, will we have deflation overall? I wouldn’t bet against it.
    Nick

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  • Clive Goggins says:

    Dont see it myself – I only spend half my time in the UK but one of the (very) few positives about being here is the abundance of low cost high quality food available in the supermarkets.

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  • nickb
    ”If our house prices continue to slide, will we have deflation overall? I wouldn’t bet against it.”

    True, note politicians have just linked their pensions to CPI (which excludes the house price index) instead of RPI (which includes the house price index)

    Traditionally RPI is always higher than CPI, I wonder if this will change ?

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  • Except that if these inflations had been produced by excessively loose monetary policy,

    The root of the problem is simply put: interest rates that have been too low……

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  • HPW
    you don’t exactly answer the points raised…
    N

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